Integrating Cash Management with SAP Treasury and Risk Management

Cash management is a core functionality of treasury, and it allows us to view all types of cash flows in SAP S/4HANA.

First of all, we can define transactions as relevant to cash management, and cash management can reflect cash flows relating to prior-day bank statements, current-day bank statements, projected accounts payable and accounts receivable activity, and cash flows related to treasury and risk management financial transactions. Each of these activities is categorized differently in the cash reporting to assist in the proper reporting of the cash flows and to increase the flexibility to slice and dice the data as required.

In cash reporting, the key differentiator to classify the source of the cash flow is the certainty level, which we assign at the point of creation to show what application has created the cash flow. Treasury transactions have a designated set of certainty levels, and the following certainty levels detail transactions that originate from bank statements and postings:

• ACTUAL: At this certainty level, the cash postings can be for regular cash activities or for treasury transactions. These transactions are then assigned liquidity items to further categorize the cash activities and show the origin of the cash transaction.
• INTRAM: If the treasury transactions are reported on an intraday bank statement, the cash flows will generate memo records that will have a certainty level of INTRAM.

The following certainty levels are specific to treasury transactions and are generated directly from the transaction cash flows:

• TRM_D: When a treasury contract is created in treasury and risk management, the structure of the contract determines the cash flows. This certainty level is for all treasury and risk management contracts except for options and futures. In a debt or investment contract, the principal flows are on the first day of the contract. Interest calculations and frequency determine the amount of interest that is calculated and forecasted in the future. Additionally, the final repayment of the contract is determined and shows up as a future flow. All of these cash flows are identified as forecasted cash flows for treasury and risk management, and records will be created to write to the FQM_FLOW cash management table. Based on the status of the transaction, we can also drive the planning level. These statuses are defined as follows:
  • Level (bank unknown): Unknown transactions are transactions that have been created in SAP S/4HANA but don’t already have a known bank account. If we create a transaction without payment details or if the contract is set up to post directly to an account, then the bank account is unknown. These types of transactions can go to a separate planning level since the bank account is not known at the time the contract was created.
  • Level (bank known): Known transactions are contracts that have the payment details filled out either in the business partner standing instructions or directly in the contract. Since we know the bank that is sending or receiving the funds, the bank is known and can go to a different planning level.
• TRM_O: This certainty level is also for treasury transactions, but it is reserved for options and futures contracts. The settings and functions for these transactions will be the same as in TRM_D, but they’ll show up at this certainty level. With an option contract, there’s uncertainty about when and if the option will be exercised, so the option contract is separated and assigned a different certainty level.

We can leverage the cash management customizing in treasury and risk management to ensure that the cash flows that originate from cash management flow correctly into a cash position. There are a couple of settings that we need to set up in a certain way to ensure that the flows show up at the correct planning levels. In the following sections, we’ll cover how to assign the planning levels for each of the product and transaction types. First, we’ll look at how to assign the planning levels in the link to cash management function, and then, we’ll look at the exceptions and how we can exclude cash flows from creating cash management records. We’ll also review a newer function in SAP S/4HANA that creates additional flexibility in the assignment planning levels by using additional attributes in the financial transactions. After reviewing all the sections on assignments, we’ll review the final output of these settings to show how these cash flows appear in the main cash management SAP Fiori app, Cash Flow Analyzer.

Assigning Planning Levels

The main transaction we use to assign the planning levels for cash management is found in the Financial Supply Chain Management > Treasury and Risk Management > Transaction Manager > General Settings > Link to Cash Management > Assign Planning Levels menu path. We set up this transaction specifically for each company code, and the key settings we define in this transaction are as follows:

• PType: This defines the product type we are assigning to this planning level.
• ACat: Each contract has a different set of activity categories, and for the interest rate instruments, activity category 10 is for contract creation and activity category 20 is for contract settlement. Due to this, we can assign different planning levels depending on where the contract is in the processing. An example from the figure below shows that we can assign a planning level of “T?” to contracts with an activity category of unsettled contracts and a planning level of “TD” to contracts that have been settled.
• Level (bank known): Accounts with bank details or business partner standing instructions are assigned when we create the treasury and risk management forecast for these flows.
• Level (bank unknown): Accounts with no bank details assigned will use the planning levels in this column.

Specifying Update Types for Cash Management

There are some cash flows that should not flow through to the cash management reporting. If we need to set up this scenario, you can find the customizing in the Financial Supply Chain Management > Treasury and Risk Management > Transaction Manager > General Settings > Link to Cash Management > Specify Update Types for Cash Management menu path. When this is the case, we can drive the cash management record creation by the update type. In this transaction, we don’t need to specify all update types, and by default, all the update types will generate cash management records. We should use this transaction on an exception basis, and we can use it to exclude update types from cash management record creation. In the next figure, we have two update types set up in this transaction. In this scenario, update types MM1100+ and MM1901‒ won’t create any cash management records.

This setting is useful when setting up letters of credit. The nominal amounts of the letters of credit are only used for the fee calculation and are not actual cash flows. Since this is the case, we can filter the update types in this configuration to ensure that the forecasted cash flows are accurate.

Basic Settings for Cash Management Integration

There are some initial settings that we can set up in the Basic Settings for Cash Management Integration node. We can find this customizing in the Financial Supply Chain Management > Treasury and Risk Management > Transaction Manager > General Settings > Link to Cash Management > Basic Settings for Cash Management Integration menu path. In this configuration, there are a few settings that we can select (see figure below), as follows:

• Simplify Flow Generation: Each product category has standard flow types that can be assigned to the cash flows. If we don’t check this box, then the standard flow types will be assigned to the cash flows, and we can use these to define derivation rules for liquidity items. If we do check this box, then only two flow types will be assigned for treasury and risk management. These are as follows:
  • 900100: Incoming Bank Cash (TRM)
  • 900101: Outgoing Bank Cash (TRM)

Additionally, if we need to use the enhanced derivation rules for the planning levels, then we need to check this box.

• Derivation Category for Planning Level – Classic Assignment: If we select this option, the planning levels will be assigned using the configuration previously set up.
• Derivation Category for Planning Level – Derivation: If we select this derivation category, we can use the Substitution Rules for Planning Levels – Treasury Flows app to assign the planning levels. 

Managing Substitution and Validation Rules: Treasury Flows

With SAP S/4HANA, we have an additional way to assign the planning levels to treasury contract flows. Instead of just assigning planning levels directly to a product type and activity type, we have additional attributes we can use to assign the planning levels. To derive the flows, we need to go to the Substitution Rules for Planning Levels – Treasury Flows app, as shown in this figure.

To derive the flows, we need to set up the following attributes. First, we need to add the Rule Name and Description for a rule. One thing to note is that the Rule Name needs to include only letters, numbers, and underscores (spaces are not allowed).

Second, we need to fill out the Precondition to determine the scenarios that the derivation should be triggered for. If we need to set multiple preconditions, we can click the Add button to add lines to this area. We can use the following fields to create a precondition:

• Bank Is Known (this filters for whether the bank is assigned to a contract or not)
• Company Code
• Activity Category
• Product Type
• Transaction Type
• Hedging Classification
• Portfolio
• Update Type
• Planning Level

To select one of the fields or functions, we click on the box to the left of the field. These fields are shown in this figure.

Once we’ve selected the field, the Value field will allow us to use the dropdown list to make the appropriate selection. In the example below, the company code and product type have been selected for the Precondition.

Finally, we can create the substitution, which defines the planning level when the defined precondition is met. In the next figure, we’re substituting the planning level TM when the contract has a value of 1000 with a product type of FX.

Cash Flow Analyzer

Once we’ve fully assigned the cash management cash flows to the treasury and risk management cash flows, we can view them in the cash management reports. The Cash Flow Analyzer app is the main report we use to view the cash flows. This report can view the forecasted treasury cash flows, and if we want to only view the flows from treasury and risk management, we can either filter them by the specific Planning Level defined for treasury and risk management or filter them by Certainty Level (certainty levels TRM_D and TRM_O are specific to treasury and risk management), as shown in the figure below. To view the forecasted treasury flows, select certainty levels TRM_D and TRM_O.

With the Certainty Level filtered in the report, we can now see the forecast for all transactions in treasury and risk management, as shown here.

Each of the line items in this report has hyperlinks we can use to drill down further into the details. This functionality allows us to drill down all the way into the financial transaction that was created in the Create Financial Transaction app. To achieve this, we click on an amount and select the Display Cash Flow Items option. After we drill down further into the specific cash flow, the details will be displayed as in the next figure. From this screen, clicking the Contract Number hyperlink will allow us to navigate to the Display Financial Transaction app to view that specific transaction’s structure and details.

Creating the link between treasury and risk management and cash management in SAP S/4HANA allows for a more comprehensive solution and helps us more effectively manage current cash balances and forecast future cash requirements.

Editor’s note: This post has been adapted from a section of the book Treasury and Risk Management with SAP S/4HANA: The Comprehensive Guide by Luke Carlson, Andrew Carlson, and Jeffrey Lasecki.